If you are being audited by the Canada Revenue Agency (CRA) or you have information about someone who is being audited by the CRA you may be asked to provide information to them. So, what type of information might CRA be looking for?
Well, they could be looking for information about your physical assets, your financial wellbeing, the amount of cash you have in your bank account, your sources of income, your spouse’s source of income and any other information that may assist them in their audit.
They can collect this information from you, from your friends, your business associates, your accountant, your bank and from any other third party that may have relevant information. If this sounds a bit broad you are absolutely correct. However, there are a few exceptions and limitations to their authority.
Specifically, sections 231.1 of the Income Tax Act allows the CRA to inspect and examine the books, records and other documents of a person, examine a person’s premises, enter into any premise or place where business is carried on and require the owner or manager of any property or business to give the CRA access to the premises and to answer any questions the CRA may have. The Act however, does state that in order to enter into a residential premise the CRA must either get consent or obtain a warrant.
The only real limitation on the CRA’s power to do this is that the CRA must show that their inquiry is for the purpose of the “administration or enforcement” of the Income Tax Act.
One of the exceptions to a third party being required to produce information is with respect to legal privilege that you have with your lawyer.
If the CRA requests information from a lawyer and the lawyer has a lawyer-client relationship with the person to whom the information relates, then the lawyer may claim privilege over the document and refuse to provide it. There is a specific process in the Act which requires the lawyer to notify the CRA that this is the reason for the refusal, and if the CRA disputes this assertion a court process will be triggered to determine the matter.
While these might be very broad powers, CRA does occasionally overstep their legal authority and if you have any concerns I would strongly recommend that you seek legal advice.
Greg Pratch is a lawyer and partner with Pushor Mitchell LLP. He practices in the area of litigation with a particular emphasis in personal injury matters and tax disputes.